Why Manufacturing Can't Solve The Jobs Problem

Here in snowy Davos, the topic of job creation has been about as popular as the passed canapés and free champagne. Not surprisingly, President Obama’s latest jobs proposals — a combination of taxing outsourcing corporations and reviving U.S. manufacturing — haven’t been as popular. It’s not hard to see why.

Among other things, Obama’s State of the Union speech Tuesday drove home the idea that U.S. industries need more protection. “Over a thousand Americans are working today because we stopped a surge in Chinese tires,” hesaid in his speech. That’s all fine and good if your goal is to hold on to U.S. manufacturing jobs. But it’s not going to solve the country’s overall unemployment problem. And in the end, it may cost the American consumer more than those jobs are worth.

For one thing, raising trade barriers on imported goods like tires makes tire-buying more expensive for American consumers, which, as Matthew Yglesias points out, only undermines those consumers’ ability to spend elsewhere. It also provokes countries like China to raise trade barriers on U.S. goods, which makes the job of increasing U.S. exports and export-related jobs even harder. Even if protections did save some manufacturing jobs, they wouldn’t be enough to move the needle on unemployment. It’s worth remembering that only 11% of U.S. jobs come from manufacturing, thanks to globalization, which has taken jobs abroad to lower-wage countries, and technological advances that have increased worker productivity. And that percentage has been declining steadily for several decades.

Losing jobs to globalization isn’t just an issue for the U.S. The trend has long been remaking workforces across the world. In China, higher wage demands have led many global companies to relocate their factories to countries with even cheaper labor, such as Vietnam and Malaysia. As economist Peter Diamond told me today, we have to get used to the fact that “globalization is a reality which isn’t going to stop.” And since we can’t reverse that process, the biggest gains in the job market can’t come from greater protections, but instead from gains in technology. Standard Chartered’s Gerald Lyons made the point today that, despite the enduring public perception that technology kills jobs, for every one job technology destroys, it creates 2.1 other jobs. Thus, instead of clinging to our past by supporting unproductive industries and erecting trade barriers, the U.S. has to find “the types of jobs that are fit for this country’s future,” argues Diamond.

That’s also true because Americans have come to expect much higher living standards than what low-skilled manufacturing jobs can provide. Jonas Prising of ManpowerGroup stressed to me today that in the 1970s, roughly 25% of the workforce that made it into the middle class did so without a high school diploma. Today, only 10% of Americans who haven’t finished high school can say the same.

Of course, the problem with leaning on innovation to spur job creation is that it takes time, which will leave a lot of people in a lot of pain for a long time. What’s more, not everyone who’s unemployed can become an innovator, aka a high-skilled, high-paid engineer or math wizz. A lot of blue-collar workers will still need blue-collar jobs. That’s something the CEO set at Davos is having a hard time arguing around.

The labor leaders around here (I’ve come across two so far in this sea of corporate titans) are still pushing for some kind of industrial policy that follows the German model, one in which the public and private sector work together on finding more productive jobs for the middle-income worker. But that kind of policy, which has to be carefully tailored to the individual country, can take a decade or more to ramp up. In the meantime, the only solution is for the middle segment of the workforce to develop “middle skills,” says Prising, in other words, two-year degrees and retraining programs that help the low-skilled or mis-skilled worker fill some of the more productive jobs we know we’re going to need. And what are those jobs? Healthcare and infrastructure are two examples of sectors destined to grow.

Of course, infrastructure requires public investment, and in this political environment, more public spending is a nearly impossible sell. That’s why we need a total reshuffle of national priorities driven from the ground up, says Diamond. “We have a debt problem and not a debt crisis. And yet we’re acting like we have a job problem, and not a job crisis.” Continued political wrangling over the merits of public spending may make a crisis of both.